Deckers picks up its pace – New acquisition could offset British store closings
Deckers Outdoor Corp. is in talks to acquire smaller footwear-maker Ahnu in a move that could give the Goleta-based company a much-needed boost after it shed more than half its value in the last five months and had its analyst ratings drop.
Deckers said it planned to buy the Alameda-based company on Jan. 23, although financial terms had not been disclosed at the time of publication.
Representatives from Ahnu and Deckers were unable to comment, but a Deckers statement said the acquisition of Ahnu will help the company gain more market share in the outdoor apparel sector.
The deal is expected to close in the first quarter and, when paired with colder winter weather, is expected to help drive up sales and the low ratings the company has recently received.
Analysts at the brokerage firm Sterne Agee & Leach downgraded Deckers to “neutral” from “buy” on Jan. 14, lowering the price target to $77 from $130.
Additionally, the firm reduced its 2009 earnings per share estimate to $7.76 from $8.64 to reflect “moderating end-market demand on nonclassic styles, increased discounting and our assumption that management pulls back distribution in response.”
The reduction was driven by the firm’s more modest UGG wholesale growth numbers and a compression in gross margins.
Zacks.com equity research analysts predicted that Deckers would show solid fourth-quarter results “due to the continued success of its UGG product line,” but added that they “believe the company’s results in 2009 will disappoint investors. Deckers profit margins started to contract in 2008 and should decrease further in 2009.”
Susquehanna analyst Christopher Svezia also lowered his 2009 estimate, cutting his share price target to $92 from $134. Svezia expects sales to slow in the second half of 2009 as management “becomes more cautious with distribution in order to maintain brand integrity.”
One distributor, London-based UGG importer Kate Kuba, has gone “into administration,” the English equivalent of Chapter 11 bankruptcy. Representatives from the women’s footwear chain could not comment on the situation.
Brian Erni of New York-based public relations firm J. Roderick said AMG Group in Glasgow, Scotland, is now the top importer of UGGs in Britain.
AMG reported that UGG sales have increased 140 percent over the past six months.
“While many retailers are reporting generally poor sales during this economic recession, the sale of the popular winter boots continues to flourish despite consumers being on tight budgets,” Erni said in a release.
“We are naturally disappointed that a strong supporter of our brand and one of our valued customers has become victim of the recession in the U.K.,” said Colin Clark, senior vice president of Deckers Outdoor’s international division.
“We have a well-developed network of quality retail customers throughout the British Isles and while we regret the unfortunate situation Kate Kuba is dealing with, we believe we have the retail distribution that allows us to continue to provide consumers with our products.”
In its report for the third quarter ending Sept. 30, Deckers increased its fourth quarter 2008 revenue growth target to 52 percent and its diluted earnings per share growth target to 44 percent, each as compared to the fourth quarter of 2007. This is up from its previous revenue and diluted earnings per share growth targets of 45 percent and 42 percent, respectively.
Deckers shares slid to $54.67 on Jan. 28, down 53.5 percent from its January high of $83.91.
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